The High Cost of Illness

From the moment news of the sars epidemic broke, analysts have been busy trying to calculate its economic costs. The absence of tourists and shoppers in places like Hong Kong and Singapore means billions of dollars in lost sales. Beijing has closed its theatres and discos, and Shanghai and Shenzhen have shut down their stock exchanges. A recent Goldman Sachs report said that if sars remains a problem in East Asia it has “real potential to disrupt industrial production and foreign trade.” If the disruption were to become bad enough, it could hobble the global economy, since everything we buy these days seems to be made in that part of the world.

Still, epidemics aren’t what they used to be. No modern epidemic is likely to reshape social and economic systems in the manner of premodern plagues. The Black Death helped undermine feudalism. The population decline was so severe that the individual’s labor grew more valuable, which enabled serfs to abandon their lords and become tenant farmers or urban workers. And a couple of centuries later smallpox transformed the Western hemisphere by wiping out native populations and clearing the way for European settlement.

Starting in the late eighteenth century, though, epidemics tended to hit economies with containable shocks. In 1793, yellow fever cut off Philadelphia from world trade and brought its economy to a near-standstill, but the city bounced back soon enough. In the nineteenth century, a series of cholera pandemics virtually emptied New York, shut down London’s river trade, and in Hungary prompted riots by peasants who believed that their landlords were poisoning them. A century ago, breakouts of bubonic plague stalled San Francisco’s economy and threatened to isolate it from the rest of the country. The Spanish-flu epidemic of 1918, which killed more than twenty million people worldwide, caused waves of business failures across the nation and helped provoke a short recession. And in the past two decades, despite the great advances in public health since the Second World War, infectious diseases have become a problem again. In 1994, for example, an outbreak of pneumonic plague in the city of Surat, in western India, curtailed trade and tourism, crippled the city’s diamond-cutting industry, and cost India more than a billion dollars.

Devastating as modern epidemics can be, the economic damage they do—much of it the result of panic and of restrictive public-health measures—is usually short-lived. Modern economies are remarkably resilient. (Not long after the Spanish-flu epidemic, the U.S. economy entered one of the biggest booms in its history.) At least in economic terms, epidemics are much less destructive than endemic diseases like malaria and tuberculosis, which afflict hundreds of millions of people in the developing world. Epidemics may have a kind of dark glamour, but it’s the old workaday diseases that do the real harm.

Unlike epidemics, endemic diseases—diseases that are more or less permanently established in a region—eat away, day after day, at an economy’s foundations. Sick people miss work more often than healthy people, and are less effective when they show up. People are less likely to invest in things that yield long-term benefits—like education—because they imagine they won’t be around to reap those benefits. Parents often have more children as a kind of insurance policy, which makes it harder for them to feed and care for each child. Sick and hungry children have a harder time in school. Finally, countries where disease is endemic have a harder time attracting foreign investment, not only because their workers are less productive but also because foreign companies are less inclined to do business in places that might prove fatal to foreign managers.

In recent years, economists have started to pay greater attention to disease. Having long assumed that wealth leads to health, they have come to recognize that health is essential to wealth, too. The economist Robert Barro has estimated that every ten-per-cent increase in life expectancy boosts a country’s gross domestic product by 0.4 per cent a year. The news that sars may reduce China’s gross domestic product by one per cent this year has provoked alarm, yet, according to the economists Jeffrey Sachs and John Gallup, malaria reduces gross domestic product by 1.3 per cent every single year in countries where it has a significant presence. You can quibble over the numbers, but no one will deny that the persistence of tropical diseases in Africa and in parts of South Asia has seriously hampered economic development in those places. Getting rid of malaria may not turn Zambia into Taiwan, but it’s worth remembering that Taiwan’s economic boom didn’t get started until after malaria was eradicated there.

Why, then, do we devote so little energy and attention to fighting endemic tropical diseases while we devote so much to fighting sars? The cynical answers are that people in the West are afraid of catching sars, and that East Asia, unlike Africa, is integral to the world economy. But there’s another argument: that it’s economically sensible to stop sars now so that it doesn’t become another endemic disease, a malaria for the Far East, which, of course, is what has happened to aids in the developing world. If it does, and if a vaccine is years away, the economies of East Asia could be transformed, and Western companies would have to rethink their dependence on the region. Before sars, China was going to be the factory floor to the world. Now it has to worry about becoming the sick ward of the East. The best advice for China may also be the simplest: get well soon.

James Surowiecki is the author of “The Wisdom of Crowds” and writes about economics, business, and finance for the magazine.